Get in touch with us

Book a FREE consultation
and receive your complimentary eBook

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield™ FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

    What areas of financial planning are you looking for advice on?

Book a FREE consultation
and receive your complimentary eBook

Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield™ FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

Implications of Upsizing on a High Net Worth Couple’s Retirement Nest Egg

impact of upsizing on retirement

A Yield Client Case Study

Project Ava could retire at 49 or 53 after upgrading home

Significantly lower risk as a result of our strategy, with very similar projected asset position

Significantly lower debt levels as a result of our advice 

Maximising super contributions, including concessional catch-up rule

Oliver and Ava are a High Net Worth (HNW) couple from Melbourne’s North-East who came to us looking to better understand how they are tracking towards retirement, and whether their plans of upsizing their family home in the future is viable.  

They also wanted clarity around their Self-Managed Super Fund (SMSF) and Life Insurance, in order to ensure that their fund and cover are still adequate for their goals. 

Ava currently works as a Management Consulting Partner for a global company, and Oliver is self-employed. They are both in their 40s, with investments in property and equity/stocks in the company Ava works for. They have 5 years age difference, which was a planning opportunity we helped them work with too. 

Introduction 

Oliver and Ava have their primary residence in Eaglemont, and investment properties in Torquay, Shoreham, and Port Fairy. They expressed their interest in upsizing their primary residence in 5 years, and wanted to know whether this would have an effect on their ability to retire at their anticipated ages of 50 and 60 respectively.  

They also wanted to have their SMSF reviewed to ensure the appropriateness of the fund and the underlying investments within; Ava specifically felt as if she lacked clarity surrounding her SMSF. 

Ava has full insurance provided through her employer; however, Oliver is uninsured as the couple felt they were being overcharged with his previous cover. 

We prepared detailed financial projections based on the couple’s current financial position. These act as a baseline to contrast against the actions and strategies we recommended in order to evaluate how upsizing their home and their decision to change Oliver’s insurance cover could impact their long-term financial position and ability to retire. 

Overview

Through our analysis, it was made clear that due to Ava’s high earning capacity, the couple should have no issue affording their desired retirement lifestyle. We advised the couple to take advantage of concessional contributions and the catch-up rule, in order to save on tax. 

Under our recommended strategy of maximising concessional contributions and re-distributing funds to Oliver with non-concessional contributions, it would appear that Ava could be in a position to retire by age 49, a year earlier than desired. However, as Ava and Oliver mentioned they wanted to upsize their primary residence, we projected that if they were to do so, it would push Ava’s ability to retire back 4 years. 

Ava also holds stock in the company she is employed at, which we recommended they should sell a portion of as they vest. The surplus funds from the sales should ensure they continue to meet their tax debt, whilst also allowing them to diversify funds into Superannuation and reduce their net debt position. 

We also reviewed the couple’s insurance coverage and undertook a needs analysis, where we identified that Ava has a need for cover, whereas Oliver does not. Our findings identified that Oliver’s ability to work is not pivotal to being able to afford their retirement lifestyle, whereas Ava has a need for cover as her ability to generate an income is crucial to the couple’s ability to retire. 

Outcomes

For Ava and Oliver, one of the most significant advantages of our advice was how we helped them balance their allocations to debt reduction, super contributions, and ongoing investment into the company Ava works for.  

The couple already held a highly concentrated exposure to Ava’s company stock and options and property and this was projected to grow exponentially. We identified that while this could be an excellent investment, it exposes them to significant ‘concentration risk’.  

Our advice saw them retain a considerable exposure to the company and all of their investment properties, while using the couple’s age difference to their advantage, by contributing non-concessionally into Oliver’s super. Not only does this diversify their investment holdings, it diverts their funds to the highly tax-effective environment of super and because it is invested in Oliver’s name, it will be tax-free and accessible to them sooner than it would be to Ava.  

Through our recommended strategy of maximising concessional contributions via salary sacrifice, we projected that could result in an estimated tax saving of $688 per annum which instead would be put into Super to further grow their nest egg. 

We also suggested Ava take advantage of what’s known as the “catch-up” concessional contribution rule. This allows her to contribute a further $11,772 to Super concessionally in the financial year ending 2022. By implementing this strategy, the couple could save an additional $2,001.20 in tax that is instead diverted towards Super where the funds can be invested tax effectively. 

As the couple mentioned they lacked clarity around their Self-Managed Super Fund, we recommended that they sell their SMSF’s current direct shareholding, which they were not confident was being proactively managed and invest in a more diversified portfolio of ETF’s, managed funds (including bespoke direct investments) & M-funds.  

We also advised that they utilise Accounting and Adviser Services (AAS) as the administrator of their SMSF. The aim of this recommendation is to reduce the administrative burden of operating an SMSF yourself and effectively allows Yield Financial Advisors to implement the recommended investment strategy. 

Based on our projections, after Ava and Oliver upgrade their home and implement our strategies, they will have a net financial position that is in line with their current strategy of continuing to accumulate direct shares.  

What makes our strategy compelling, is that we have accounted for the tax implications of the various sales of accumulated company shares, that are recommended along the way (compared to current where there is a substantial unrealised capital gain) and the investment return assumptions we have used on money in super, are lower than the accumulating company shares, meaning they get a very similar projected outcome with lower risk and a better net (after-tax) return.  

In addition to this, their net debt levels would be substantially lower in 10 years with our strategy than current, further reducing the comparable risk. 

impact of upsizing on retirement

Important Note 
Produced with our client’s permission. Names within this case study have been changed to protect the client’s right to privacy. The content of this case study has been based on a real-life client. Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published. 
Testimonials

What Our Clients Say

We have entrusted our wealth creation and future security with Yield Financial Planning for a number of years now. They truly are professionals who have stayed ahead of the game by making strategic decisions at the right time and have always given sound advice. Security for our future is in great hands. Thanks Yield Financial Planning!!!

Yield Financial Planning have been excellent in their advice and investment strategies being a pleasure to work with over many years. Their strategies and constant portfolio reviews making changes when needed have guided us right through from our working days, the GFC and now retirement. We hold Yield as being an invaluable necessity.

Yield Financial Planning has provided us with professional expert sound advice. It is always a pleasure to deal James and his team who always have our best interests at heart and has set up a sound plan for retirement. James and his team have provided first rate advice and funds management. I have confidence in James’s competence and integrity.

Just the excellent service we receive and doesn’t matter how many questions we have; the staff are happy to oblige. They follow things through and let us think about important and critical matters methodically with a helping hand along the way. So overall the Journey is pleasant, professional and comprehensive yet it is explained to you what could help you or your needs.

I’ve been with Yield for more than 10 years and I’ve found the advice invaluable in helping to navigate life’s twists and turns. Highly recommended 5 Stars!

I would like to congratulate Yield Financial Planning, for their high quality of care, expertise and knowledge they have provided in ensuring my future growth is heading in the right direction. These qualities have reflected both in results and the ongoing follow up as an existing client, which I find reassuring.

Have been with Yield for a few years as my financial planners, and was very pleased when they announced their Mortgage Brokering Services – their Broker had great communication, and at no time was I unsure of where we were in the process. Being my Financial Planner, I was much more comfortable knowing they had my interests at the forefront of all negotiations – rather than getting a mortgage broker off the street who is probably aligned with a bank. From a more financial perspective, Yield saved us over $5000 per year through reduced interest payments alone – I highly recommend looking into Yield Financial

Penny O’Grady & Trevor Shevchenko
Kevin & Anne Kennelly
Renae Chapman & Tim Walsh
Ken & Frances Moore
Tim Prosser
Angela Henwood
Wade Lamberth & Narges Bayat
decoration leaves 1
decoration leaves 1
decoration leaves 1
decoration leaves 2
decoration leaves 2

Get In Touch

Interested to discuss something?
Have a question or comment?
Submit your details and we’ll be in touch.

Free Consultation

Free Consultation

Get started with your free strategy consultation and receive a copy of the MOST IN DEMAND Good Fortune Guide – written by Certified Financial Planner of the year 2020 national finalist, to help educate you on your financial plan.